As the world continues its move toward a more sustainable future, electric vehicles (EVs) gain popularity as a way to reduce carbon emissions and support environmentally friendly transportation. Governments worldwide are encouraging this shift with incentives to help the adoption of EVs. One such measure in Australia is the exemption of electric vehicles from Fringe Benefits Tax (FBT). At BYRONS we are seeing firsthand more clients purchase EVs to take advantage of the benefits available. In this article, we explore what you need to know about electric vehicles and FBT exemption.
Understanding the FBT Exemption for Electric Vehicles
Recent legislative amendments have introduced significant benefits for businesses that opt for EVs, as the private use of an EV is exempt from fringe benefits tax (FBT).
For an EV to be exempt from FBT:
- The benefit must be a car benefit – this generally requires that a car owned or leased by an employer is provided to an employee;
- The car is used by a current employee or associate (family member);
- The car is a zero or low emission vehicle;
- The car is held and used on or after 1 July 2022; and
- Luxury car tax has never been payable on the importation or sale of the car.
The luxury car tax threshold for fuel efficient vehicles is $89,332 for the 2024 financial year.
While the exemption currently covers plug-in hybrid electric vehicles, this comes to an end on 1 April 2025 unless specific circumstances exist.
The Government intends to conduct a review of the FBT exemption for EVs by mid-2027.
Associated Car Expenses
The following car expenses in relation to EVs are also exempt from FBT, provided they are incurred during the same period as the car benefit:
- Registration and road user charges;
- Repairs or maintenance (as long as they are not capital in nature); and
- Fuel, including electricity to charge and run an EV, where the EV being charged is provided as a car benefit.
Employer and Employee Savings
The amendments to the FBT provisions not only benefit the environment but also result in substantial savings for both employers and employees. Many companies provide vehicles to employees as part of their remuneration package, often incurring FBT liability due to the private use of these vehicles. The FBT exemption for EVs can significantly reduce or eliminate this liability, allowing employers to provide more attractive remuneration packages, helping to lure talent.
Although the provision of the benefit is exempt from FBT, employers need to keep records and calculate the value of benefits provided. This is because where the taxable value of benefits provided to an employee exceeds $2,000 in an FBT year, the employer must report the grossed-up value of the benefits through Single Touch Payroll for the corresponding income year. The grossed-up value of these benefits is included in the employee’s Adjusted Taxable Income which is used for a number of measures including Family Tax Benefits, Child Care Rebates, Division 293 Assessments (superannuation) and various other means tested items. Employers that use the Operating Cost Method for calculating this value may be able to assist employees to maximise benefits available to them.
Charging Infrastructure and Battery Replacement
Where you install charging infrastructure at your business premises, it will be a capital asset of the business and no FBT will arise. If you install charging infrastructure at an employee’s home, it will be a property fringe benefit and subject to FBT. Where you reimburse the employee’s cost, it will be an expense payment fringe benefit.
Where you a replace battery pack of an EV with a modern day equivalent of the previous battery with similar power, storage capacity and lifecycle, this will be a repair and exempt from FBT. Where the replacement battery has significantly more power, storage capacity or longer lifecycle, it will likely be an improvement to the EV, will be treated as a capital item and increase the value of the car for FBT purposes.
In conclusion, EVs meeting the FBT exemption criteria outlined above provide an opportunity for both employees and employers to embrace a greener future and to take advantage of financial incentives.
The information above is intended as general information only. Please contact your BYRONS advisor if you would like to find out how you may benefit from the EV FBT exemption described above and the requirements apply to you or your business.
Author: Simon Alford, Partner – Tax at BYRONS.